Think carefully before co-signing anything, your future home may be on the line

Reblogger Mark Watterson
Real Estate Agent 5660894-PB00

Co-signing is enabling destructive behaviors more often than not. 

In a few cases life throws some tough pitches.  Still co-signing is not the solution.

Your doing everyone on a favor by just saying no, thank you.

Matt make many excellent points below. 


Original content by Matt Grohe

This was a painful week for a prospective buyer on one of my listings. He found out after getting his offer accepted that a late payment was made in May on a car loan he consigned on last year. The net result was that his credit score dropped below the level needed for him to get a loan.

Most people want to be helpful, and when a family member or friend who seems to be stable needs a cosigner on a loan the temptation is there to lend a hand. After all, you know this person. They are responsible, they pay their debts, they are honest. However, situations can change, and despite someones best intentions, they may not be able to make the payments on time due to illness, job loss, or other unforeseeen circumstances. And when that happens, the cosigners credit is affected.

In most situations where two people are on a loan there is joint and several liability meaning that if one party bails, the other party is on the hook for the full amount of the loan. In the case of a car loan, lets say the person who had agreed to make the payments just stops making them, and refuses to relinquish the property to boot. You could take the other person to court and seek to have the court award the property to you, but in the meantime you would need to pay on the loan to avoid massive damage to your credit. Also, if there is a tacit agreement between you that the other person will make all the payments, you may not be aware if they are being made in a timely fashion. This can be devastating for your credit.

If you are planning to buy a home and you are approached by someone wanting you to co-sign a loan, you should consider what the worst case scenario would be. If the worst case scenario is that your credit would be damaged and you would not be able to purchase the property as a result, then you need to consider that as being with the realm of possibility.

Again, most people want to help a person in need, especially a child or close relative who may not have any credit or who is just getting their start out of college, a divorce, a relocation or the like. In these situations it's important to remember though that your name and your credit are on the line, and if your credit is tarnished, it may take years to recover from the damage.



Matt Grohe, RE/MAX Real Estate Concepts 3125 Douglas Ave Des Moines, IA 

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Edward & Celia Maddox
The Celtic Connection Realty - Queen Creek, AZ

Matt, good article.  You really have to know what you are potentially getting into.

Jun 19, 2010 03:25 AM #1
Scott Hayes
(512) 786-8300 - Austin, TX
Realty Austin, Broker Associate

Matt, I had the same thing with a client of mine. He cosigned for a motorcyle for his brother, and  two late payments popped up three days before closing. Fortunately, he told me there was over ten thousand dollars in an account they set up to be automatically drafted, and his bank failed to do so, and issued a letter where they admit fault.

We are fighting like crazy with the finance company, Harley Davidson Financial, to do a courtesty deletion. I suspect they will relent after we write upper management, but this entire ordeal could have been avoided.


Jun 19, 2010 03:32 AM #2
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Mark Watterson

Utah Real Estate
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